Download SMSG letter PRIIPs past performance

Securities and Markets Stakeholder Group
Date: 13 October 2015
ESMA/2015/SMSG/028
Martin Schultz, President of the European Parliament
Roberto Gualtieri, Chair ECON
Pervenche Berès, MEP
Pierre Gramegna, Minister of Finance, Grand Duchy of Luxembourg
Jonathan Hill, Commissioner
Jyrki Katainen, Commissioner
Re: The major concern of all European securities and financial markets
stakeholders regarding the “PRIIPs” Regulation: The elimination of past
performance in the contents of the Key Information Document, and its
replacement by “future performance scenarios
Dear Sirs, Madame,
The Securities and Markets Stakeholder Group (SMSG) advises ESMA on all regulatory and supervision
matters. In compliance with EU Law, it is composed of expert representatives of financial market participants operating in the Union, of their employees, of consumers, of users of financial services and of independent top-ranking academics.
“PRIIPs” (Packaged Retail and Insurance-based Investment Products) cover a large range of investment
products that are marketed to savers and individual investors which, taken together, make up a market in
Europe worth up to €10 trillion.
The SMSG is unanimously and highly concerned that standardized, easily comparable data on historical
performance (of both the product and of its chosen benchmark) will be eliminated under the PRIIPs
Regulation. All the work undertaken for many years to achieve this major improvement in the KIID for
investment funds (UCITS Directive) will thus have been in vain. With the PRIIPs Regulation as it stands,
we are very concerned that also UCITS funds will have to eliminate this key disclosure from their KIID
before the end of 2019.
Of course, The SMSG acknowledges that past performance is not a reliable predictor of future performance.
ESMA SMSG • 103, rue de Grenelle • 75007 Paris • France • Tel. +33 (0) 1 58 36 43 21 • www.esma.europa.eu/smsg
However, without any information on past performance (including comparison with benchmarks), EU
citizens will be prevented from knowing:
•
if the product has generated any positive performance in the past or - on the contrary - has re-
duced the value of their savings (in other words if the product has made money for the investor or not
so far)
•
if the product has met or exceeded its stated investment objective
•
if the product has matched or not the performance of its chosen benchmark
•
if comparable products have performed better or not.
Even worse, EU citizens would be left with only artificial "scenarios" of future performance which we
strongly believe would be even more misleading than past performance, as most likely :
•
the use of probability-weighted scenarios will not be retained due to the difficulty of designing
those;
•
the likely use of “what if” scenarios (like (“favourable”, “neutral” and “unfavourable” ones) that are
not probability weighted will run the risk of making the average retail investor believe that the "neutral" scenario is the most probable, which is not the case.
In other words, the SMSG considers that the risks for future performance scenarios proving to be misleading and further also not comparable between different products are very high, and much higher than
those arising from the (currently required for UCITS funds) disclosure of standardised historic performance together with that of the benchmark selected by the provider (always accompanied with the warning that past performance is not an indicator of the future one).
Besides, stakeholders - including the ESAs - are already struggling to get clear and comparable data on the
past performance of retail investment products. The Capital Markets Action Plan released by the Commission on 30 September this year clearly asks the ESAs to analyze the actual performance of retail investment products.
The SMSG also wishes to underline that a prerequisite for the disclosure of performance related information is the compliance with existing investor protection rules, and, in particular those of MiFID I and II.
MiFID requires that any information provided to investors must be “fair, clear and not misleading”. In
particular, “clear” legally means among other things that it is intelligible to the target audience. We doubt
that whatever the parameters and models used, future performance scenarios would ever meet this legal
requirement, especially as the KIID must be kept short (3 pages) and comparable. Any standards for future
performance scenarios that will not meet this intelligibility requirement will therefore face the risk of
being unlawful.
The whole SMSG therefore considers that an elimination of information on past performance - and especially past performance compared to that of the benchmark(s) chosen by the investment product provider
ESMA SMSG • 103, rue de Grenelle • 75007 Paris • France • Tel. +33 (0) 1 58 36 43 21 • www.esma.europa.eu/smsg
- would be a huge step backwards in terms of investor information and of investor protection. It would
most likely maximize the risk of misleading and confusing individual investors and will certainly not
improve their already rock-bottom (see the EU consumer scorecard published every year by the European
Commission) trust level in the investments and savings services.
Therefore, as mentioned in its recent public advice, the SMSG wishes to formally warn the European
regulators about the extreme danger of forcing EU individual investors to rely only on shaky, hardly comparable future performance scenarios, while depriving them of the only performance information that is
objective and that is least subject to mislead them: the standardised and comparable historical performance of the product and of its objective benchmark (currently required for all UCITS funds).
The SMSG believes that the best solution for all stakeholders – in line with the “REFIT” objective of the
Commission – is to amend the Level I Regulation in order to reintroduce, as soon as possible, in article 8
of the Regulation, the disclosure of past performance of both the investment products and of their chosen
objective benchmark.
The SMSG is therefore respectfully asking the Level I EU Authorities to take action as soon as possible and
in any case before 31 December 2016 (the date when the Regulation will apply).
Yours sincerely,
Jesper Lau Hansen
Chair
c.c. Steven Maijoor, Chair ESMA, Andrea Enria, Chairperson EBA, Gabriel Bernardino, Chair EIOPA,
Members of the ESMA Securities and Markets Stakeholder Group
ESMA SMSG • 103, rue de Grenelle • 75007 Paris • France • Tel. +33 (0) 1 58 36 43 21 • www.esma.europa.eu/smsg